In Florida, and in other jurisdictions throughout the country, debts owed by the decedent are not automatically resolved after death. In fact, creditors — those who the decedent owed various debts — are entitled to submit claims against the estate for up to two years from the date of the decedent’s death.
Given the potential for conflict when there are significant debts owed by the estate, it’s important to consult qualified Fort Myers probate lawyers for assistance, whether in the form of preventative and comprehensive estate planning services or in the form of estate administration services.
If there are significant creditor claims against an estate, the distribution of assets to the intended beneficiaries (i.e., children, spouse, friends, etc.) may be seriously affected. Creditor claims in Florida tend to take priority over the those of the estate beneficiaries with respect to non-exempt probate assets, and as a result can therefore lead to an unexpected “chipping away” of the assets intended to distributed to the beneficiaries.
Let’s take a quick peek at how creditor claims work.
Creditor Priority and Payment
Once a person dies, the personal representative of the estate will initiate formal probate proceedings and serve notice upon Florida creditors. Those creditors must thereafter submit a claim against the estate before the applicable deadline — in Florida, three months after publication of the notice for unknown creditors, and 30 days after formal service of the notice for known or reasonably ascertainable creditors. Of course, you need not accept the claim as legitimate. The personal representative or any other interested person in the proceedings may object to unjustified or otherwise illegitimate creditor claims.
Not all debts of the decedent are treated equally, and there is actually a priority hierarchy for payment. Probate administration costs and expenses — such as attorney fees, court fees, accountant fees — are entitled to reimbursement from the probate assets before any other creditors can secure payment of their claims.
After the expenses of estate and probate administration have been paid, then creditor payment will be drawn from the remaining assets. Section 733.707 of the Florida Statutes establishes the order of priority for creditor claims.
Such claims will be paid in the following order:
- Funeral expenses up to $6,000.00
- Federal debts and taxes
- State debts and taxes
- Medical and hospital expenses of the last 60 days of the last illness of the decedent Family allowance
- Arrearage from court-ordered child support
- Debts acquired after death by the continuation of the decedent’s business, in accordance with s. 612(22), but only to the extent of the assets of that business.
- All other creditor claims
All creditor claims that have been filed against the estate must be resolved before the personal representative can continue with the probate administration process and distribute the assets to the intended beneficiaries.
Automatic Succession Can Affect Fort Myers Creditor Claims
Importantly, creditor claims can only be made against those assets that were left exclusively in the decedent’s name after their death and against assets in held by a trustee of a revocable trust where the decedent was the grantor of the revocable trust. Any estate assets that were payable-on-death or transferrable-on-death will not be rendered vulnerable to creditor claims — this also applies to property that passes to a beneficiary automatically by operation of law.
For example, suppose spouses co-own real estate as tenants by the entirety. When the decedent dies, the surviving spouse automatically becomes the owner of the entire property. Creditor claims against the probate estate of the decedent cannot affect the real estate as it is not an asset that has to pass through probate.
What Property Is Exempt From Creditor Claims?
In Florida, the homestead exemption ensures that homestead property is shielded from creditor claims so long as it is devised to the decedent’s heirs. Property is deemed Florida homestead property if at the time of death the decedent resided or intended to make it his or her permanent residence. If the residence is located outside a municipality, then the homestead shall be to the extent of 160 acres of contiguous land and improvements thereon, which shall not be reduced without the owner’s consent by reason of subsequent inclusion in a municipality. If the residence is located within a municipality, then the homestead shall be to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner’s family.
The Florida Constitution requires, also, that homestead property be held as a natural person — though it’s worth noting that with the exception of one federal bankruptcy court decision in the middle district of Florida (In Re Bosonetto, 271 B.R. 403 (Bankr. M.D. Fla. 2001)), Florida court decisions have determined that ownership of the homestead in a revocable trust does not result in the loss of the homestead protection for purposes of devise (nor does ownership via revocable trust preclude the property tax exemption). Further, you must be a Florida resident to take advantage of the homestead exemption.
With the homestead exemption, creditors cannot force the sale of homestead property to satisfy their payment. This is enormously beneficial when there are significant creditor claims that have been filed against the estate — especially since the homestead exemption is unlimited (there is no maximum limit for the value protected from creditor claims).
According to section 732.402 of the Florida Statutes, other exempt property for the benefit of the surviving spouse or if none, for the benefit of the decedent’s children, includes the following:
- Household furniture, furnishings, and appliances in the decedent’s usual place of abode up to a net value of $20,000 as of the date of death;
- Two motor vehicles which are not individually in excess of 15,000 pounds, and are held in the decedent’s name and are regularly used as personal motor vehicles by the decedent and/or their immediate family members;
- Qualified tuition program payments; and
- Benefits paid pursuant to section 112.1915 of the Florida Statutes.
Contact Our Experienced Team of Fort Myers Probate Lawyers for Assistance
Here at the Law Office of Jeffrey A. Attia, we have assisted numerous clients — from divisors to personal representatives — with estate planning and estate administration issues, including those that involve creditor claims. If you have questions or concerns about how creditor claims on the estate work in Florida, we can help.
Call us today at (239) 919-2318 to schedule a free consultation with our team of knowledgeable Fort Myers probate lawyers, or submit an online message through our website.